U.S. Supports Patent Ruling In a Setback For Qualcomm

By MATT RICHTEL

Published: August 7, 2007

In a decision watched closely by the mobile phone industry, the Bush administration on Monday let stand an earlier ruling that requires Qualcomm to pay licensing fees to its competitor Broadcom.

Qualcomm, which makes chips used in many mobile phones, has argued that the ruling, made in June by the United States International Trade Commission, could lead to a ban on the importation of millions of new phones that use power management technology covered in a patent controlled by Broadcom.

But serious disruption in the phone market is unlikely, said Susan C. Schwab, the United States trade representative, in upholding the ruling. Ms. Schwab noted that since the June ruling, two major mobile phone carriers have reached agreements to pay licensing fees to Broadcom, allowing them to bring the latest phones into the country.

Ms. Schwab also noted that Broadcom had agreed to give a royalty-free license to public safety organizations using new phones, a move that she said ameliorated Qualcomm's claim that Broadcom's demand for fees could hamper public safety.

The decision is a blow to Qualcomm, based in San Diego, which is a dominant maker of chips for phones used on mobile phone networks operated by Verizon Wireless, Sprint and AT&T. Qualcomm has argued that the licensing fees of $6 a phone that Broadcom demanded were prohibitively expensive.

Broadcom, a chip maker based in Irvine, Calif., has countered that Qualcomm is using its power- management technology without paying royalties. Broadcom has sued Qualcomm over the issue, but the suit was stayed pending a decision by the trade representative.

Lou Lupin, general counsel for Qualcomm, said the company planned to appeal for an emergency stay of the ruling to the United States Circuit Court of Appeals for the District of Columbia.

''We're obviously disappointed but not terribly surprised,'' Mr. Lupin said of the decision.

He said Qualcomm's argument that the June ruling would hamper public safety appeared to have been at least partly undermined by Broadcom's agreements with the two mobile carriers.

Verizon reached a deal with Broadcom last month. The other company has not been publicly identified.

David Rosmann, vice president for intellectual property litigation at Broadcom, said the company would seek an immediate enforcement of the ruling that would bar the importing of phones with unlicensed Broadcom technology. Mr. Rosmann said such a ban would probably affect fewer than 10 percent of phones, and only new models that are not yet on the market.

Mark McKechnie, a telecommunications equipment industry analyst with American Technology Research, said it was in the interest of consumers for Qualcomm and Broadcom to reach an agreement.

''It's going to slow down the ramp of U.S. technology if it holds,'' Mr. McKechnie said.